Element of profit taking behind slump after recent rise

The ongoing rollercoaster that is Xcite Energy certainly continued its exciting tale yesterday.

Xcite’s announcement was fairly upbeat, with management using all the right language, but the shares reacted negatively. Why? Usually, when a company makes a positive statement and uses words lines like “exceeded management expectations” one would expect the shares to rise.

In our view, the reason for the weakening of Xcite’s share price is down to several factors. The first is the rapid rise over recent months.

You could have picked up Xcite shares about 70p in July, so following yesterday’s announcement it would not be out of the question to see some profit taking. It goes back to the old adage: no one ever got poor taking a profit.

The market had also been expecting the announcement that pre-production well testing was complete.

This, plus the fact that there will be limited news flow from the company in the coming weeks and months, until such time as it moves on to the next phase of the work programme, means that – certainly for the short term – there will be little to drive the share price in any significant direction.

Given the stock is fairly heavily traded, being held by a variety of long-term holders and short-term traders, we would not rule out further volatility.

Alan MacPhee is an investment manager at financial planning and wealth-management specialist Brewin Dolphin in Aberdeen